Low interest lures ARMs holders to fixed mortgages

Real Estate Watch

December 14, 1997

With mortgage rates sinking to some of their lowest numbers in the last two years, Freddie Mac reported that for the third quarter of 1997, homebuyers abandoned adjustable-rate mortgages and moved into fixed-rate products.

Among borrowers refinancing 30-year fixed-rate terms, 66 percent chose to go into a lower-interest 30-year term, up from 61 percent in the second quarter of 1997. Of those who were in 15-year mortgages, 30 percent chose to go into a 30-year term, 9 percentage points lower than second-quarter figures.

And 63 percent of those who were in one-year ARMs refinanced into a 30-year fixed-rate mortgage, up 1 percentage point over the second quarter.

While borrowers who held ARMs primarily preferred the 30-year term, 24 percent did refinance into a 15-year term, 14 percentage points higher than second-quarter figures.

The study is based on mortgages for which Freddie Mac, a stockholder-owned company established by Congress, purchased both the original and new loans.

"If interest rates stay at their current low levels, the prevalence of the 15-year product can be expected to increase further," said Vassilis Lekkas, senior economist for Freddie Mac.

According to Freddie Mac statistics, approximately 40 percent of conventional mortgage applications in the third quarter of 1997 were for refinancing, up from nearly 24 percent in the second quarter of 1997, and considerably higher than 22 percent in the third quarter of 1996.